What is top of mind for the healthcare industry in 2021? LBMC’s fourth annual Business Outlook Survey Report addresses this question and offers insight into business trends, challenges, and levels of optimism across seven major industries in the U.S., including healthcare.

Healthcare organizations comprised the largest segment of the survey’s 500 respondents, mostly in C-level positions. More than half of the participants represent companies with 15 million plus in revenue. The report provides insight into the business landscape over the last 12 months and expectations for the new year. The report focuses on current business challenges, impacts of the pandemic, election sentiment, and economic conditions and highlights businesses’ goals for the coming year.

Current Business Challenges

According to the survey, COVID-19 was the top challenge for healthcare organizations in 2020, affecting 72% of survey respondents. The pandemic was followed by regulatory requirements and staff turnover. Developing new products fell from 38% in last year’s study to 11.2% this year.

Cybersecurity is a key priority for one in four healthcare organizations. Of those organizations that are prioritizing cybersecurity, nearly 80% plan to conduct a cybersecurity risk assessment, and 65% plan to implement IT assurance and compliance.

“It is a little surprising that only 25% of healthcare organizations indicated that they intend to prioritize cybersecurity this year. Cybersecurity issues have been a pain point for the industry for quite some time, and unless entities continue to focus on addressing cybersecurity challenges, there is no reason to expect that the cybersecurity situation will improve. Unfortunately, the volume and sophistication of attacks has only increased, making it more difficult to stay ahead of the next big cyber threat. Therefore, now is not the time to divert attention away from important cybersecurity and data protection initiatives. Hopefully, all healthcare organizations will be able to find a way to properly assess, measure, and manage their cybersecurity risks in 2021. If not, the industry may be in for another long year.”

– Mark Burnette, CPA, CISA, CISSP, CISM, CRISC, CCSFP, QSA, Shareholder-in-Charge, Information Security

Healthcare Current Business Challenges

Impacts of COVID–19

Of all industries studied, healthcare was affected most negatively by COVID-19. 78.1% of healthcare organizations experienced a negative impact from COVID-19. When asked what aspects of their business were most impacted by COVID-19, healthcare organizations’ top three responses were loss of sales/revenue, cancellations of appointments, and decrease in demand for services. When asked which operating assumptions they plan on revisiting as a result of the pandemic, the top responses were staffing/recruiting, remote work/office setup, and technology/automation.

Healthcare Impacts of COVID-19

“Many physician practices were, in impressive fashion, able to pivot to telehealth as evidenced by the number of telehealth visits that increased by 154% in Q1 2020 as compared with the same period in 2019. As the pandemic entered the summer, telehealth visits accounted for just 21% of total encounters by the middle of July, down from 69% at the early peak of the public health crisis in April. While telehealth use largely remains well above pre-pandemic levels, many still say its popularity is here to stay. The recent downturn in visits has created an undeniable whiplash effect, and many hospitals and physician practices that rushed to retrain their staff to deliver most types of care virtually in March are now trying to strike a new balance based on shifting patient preferences and needs.”

– Andrew McDonald, FACHE, Shareholder and Practice Leader, Healthcare Consulting

Election Sentiment

While many healthcare organizations are concerned that the election will have a negative impact on their business, a majority hold neutral or positive outlooks. 40.4% of Healthcare organizations believe that the results of the recent election will have a negative impact on their business. Top reasons for negative impact were increased taxes/regulations, concerns about nationwide healthcare and socialized medicine, and belief that new government is anti-business. 28.8% believe that the results of the recent election will have a positive impact. The top reasons for positive impact were greater healthcare coverage/reimbursement, and favorable outlook on healthcare.

Healthcare Election Sentiment

Future Outlook/2021 Goals

While optimism about the regional, national, and world economic outlook fell, healthcare organizations are optimistic about 2021. Top business goals include growing sales, improving financials, and increasing business value. 92% of healthcare organizations believe they will achieve revenue growth in 2021, an increase of 15 percentage points from last year.

One in five healthcare organizations are considering a merger or acquisition in 2021. Healthcare organizations expecting minimal to no growth have a stronger consideration for M&A. Some may see a merger or acquisition as a way to accelerate their revenue growth.

“No surprise here from survey respondents given what we’ve seen in our M&A Practice. What was an initial slowdown resulting from the pandemic was made up in transaction activity during Q3 and Q4-20. We have seen this robust activity continue into January with a strong pipeline of healthcare deals for the rest of Q1 and the beginning of Q2-21, particularly in the home health, hospice, behavioral health, population health management, and physician services sectors. Investors should plan for thorough due diligence of normalized 2020 operations to determine any lingering COVID impacts despite a target’s return in late 2020 to pre-COVID volumes.”

– Lisa Nix, CPA, Shareholder and Practice Leader, Transaction Advisory Services

Key Takeaway

As healthcare organizations begin to catch their breath, many are re-evaluating their current business model in which non-critical services pay for the majority of critical ones. Now is the time to take lessons learned during the pandemic and apply them to your organization’s plans for the future.

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2021 Business Trends - Priorities in the Healthcare Industry

Key Findings

Unsurprisingly, healthcare organizations were most challenged by the onset of COVID-19 in 2020. However, where other industries were greatly challenged by domestic economic conditions, healthcare organizations struggled more with regulatory requirements and staff turnover.

The negative effects of the pandemic were most acute among healthcare organizations—often related to loss of revenue and cancellation of appointments. To cope with the broad impact of COVID, healthcare organizations are rethinking critical business operations such as staffing, remote work and office configuration.

“Leading up to the pandemic, the average hospital and health system operating margins were anemic, their cash positions were eroding, and performance and liquidity in non-expansion states were particularly bleak. Thanks to provider relief funds, many hospitals and health systems are now flush with cash, though declining financial performance persists. Relief funds were a vital shot-in-the-arm for many. For some, however, they may have provided a false sense of security by masking underlying ongoing financial distress.”

– Mark Armstrong, Shareholder, Healthcare Consulting

Healthcare organizations viewed the 2020 election similarly to other industries. More healthcare respondents believe the election will have a negative impact on their business than believe it will have a positive effect, but almost a third of respondents believe the election will have no effect at all on their business.

When asked about the outlook on the economy, healthcare was the industry least optimistic about the US economy. However, the majority of healthcare companies believe they will achieve revenue growth in 2021.

Healthcare organizations were more likely than many industries to increase their hiring over the past 12 months, especially among the high growth cohort. Heading into 2021, healthcare organizations place a high importance on acquiring and retaining talent, which they plan to address by hiring new employees and offering more flexible or remote work arrangements. Investing in technology is a high priority for healthcare organizations but is not quite as important as acquiring and retaining talent. When it comes to technology investment in 2021, healthcare organizations are most interested in business intelligence and analytics.

“Healthcare organizations can see an immediate benefit in FTE productivity by implementing data acquisition and engineering. Pulling together large and disparate types of data from multiple sources into an organized format so that non-technical clinicians and hospital executives can utilize the information in decision making can have an immediate and significant impact on overall FTEs and their ability to focus on the more important tasks.”

– Brad Milner, Senior Director, Healthcare Analytics

In 2021, healthcare organizations are primarily focused on selling existing products. A majority of organizations plan to sell existing products to current or new markets. Fewer healthcare organizations are planning to launch new products in 2021. Healthcare organizations plan to increase their capital spend in 2021. This is especially evident among the high growth group, with an average increase that is more than 15 percentage points higher than the no growth group. The most common targets for increased capital spend are acquiring new locations and upgrading IT services.

“The most common struggle for healthcare CFOs that we see is the challenge of consolidations for multi-entity, multi-location organizations. Healthcare CFOs must contend with the expansion of facilities and service lines across regions and states, varying and changing nature of accounting rules as regulatory frameworks evolve, an emphasis on growing the business through both organic new ventures or by acquiring others, and increasing inter-relationships and inter-company activities between entities within the parent company. Addressing the challenges of consolidation using a single, cloud-based financial system tool can propel your healthcare organization forward.”

– Stacy Schuettler, President, Technology Solutions

To see more insights from the healthcare industry, including strategies related to sales and profitability, capital spend, mergers & acquisitions, acquiring/retaining talent, technology usage, and cyber & data security, download the LBMC 2021 Business Outlook Survey Report.

About the Business Outlook Survey Report

The report was based on results from the national Business Outlook Survey, where more than 500 business leaders, mostly in C-level positions, reviewed business activity over the past year and provided insight into the business landscape over the next 12 months. More than half of the participants represent companies with $15 million plus in revenue and at least 50 employees. For the first time, this year’s report also surveyed high growth companies – businesses with a growth rate of at least 20%.